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City Views presents commentary from staff on the latest projects, initiatives, and successes.

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Dec 08

Aesop’s Ant is a GM Mustang’s Best Friend

Posted on December 8, 2016 at 11:38 AM by Susan Finarelli

By Karen Oliver, City Council Member and Chair of City Council's Budget & Finance Committee

The classic Aesop’s Fable of the grasshopper and the ant is the tale of preparation. A grasshopper spent the summer singing while the ant worked hard to store up food for winter. The grasshopper didn’t understand why the ant was working so hard until winter came, when he discovered that the ant had wisely saved a stockpile of food for the long winter. And he had not.

The City of Falls Church faces a fiscal winter. We have enormous capital investment needs in the next ten years, and our current capital reserves are not enough to cover all of it. The needs for school facilities, as well investments in library, city hall and our transportation network are enormous. Like the ant, we have already started saving but we need to do more soon.

To continue preparing, the Budget & Finance Committee reviewed the City’s fiscal policies and is recommending several changes to City Council at its December 12th meeting. The proposed revisions to fiscal policy will support stronger long-range planning and also make possible the once-in-a-generation financing challenge presented by the proposed George Mason High School Campus Project. However, the revisions come with a cost to taxpayers, as soon as the next budget year. We hope you understand the commitments we will make in adopting the policy. Like the ant, we need to prepare together so that we can survive the winter.

In preparation for the extraordinary capital projects, Council has set aside some proceeds of the 2014 water sale and the small surplus from last year’s budget in capital reserves. A first proposed revision to the fiscal policies clarifies that our capital reserves may be used for annual debt service. This gives us an additional financial strategy for reducing the tax rate burden of this extraordinary project. That doesn’t mean we will have no tax increase to fund the capital projects, but it does mean that the increase will be less painful.

Even with these measures, the current borrowing capacity of the city is far less than the estimated cost of a new high school, library and City Hall. With the help of financial advisors, we’ve further tweaked our policies to allow us to borrow sufficient funds for these extraordinary needs, with a plan to mitigate the risk.

Municipal debt management policies are designed to reassure lenders that city bonds are a safe investment so that we can borrow at the lowest possible cost. To show lenders we can manage our debt load, our policy holds the annual debt service load to 12% of the total operating budget. We also demonstrate that the city considers borrowing capacity for future projects. The current policy parameters require that the city use 20-year level principal debt so that at least 25% of our debt is paid off within 5 years and 50% is paid off within 10 years.

The second key proposed policy revision allows the city to issue 30-year level-payment debt if a plan exists to rebuild debt capacity within 5 years. The third proposal allows the city to exceed the 12% debt service limit if additional resilience is created by increasing the unassigned fund balance. To increase unassigned fund balance in support of an extraordinary capital project requires an increase to the average residential tax bill in next year’s budget. This will provide the city with additional financial capacity to embark on its capital plans. By saving now we will spend less in the long run. Like the ant, we need to stock our cupboard before winter comes.

Finally, the proposed revisions to the capital reinvestment policy call for new annual cash funding of at least $1 million per year for smaller capital projects. Current policy is silent on this issue and recent budgets have underfunded rehabilitation and replacement of existing building and heavy equipment, or have used debt for these needs. It is important that we commit to this regular investment in infrastructure and keep our debt capacity for key projects for the city. Are you prepared to be an ant so that we can meet this important need?

The current policy and proposed revisions are available online and I encourage you to take a few minutes to review them. (Click here for the draft discussed at the December 5 Work Session.) The changes highlighted above are not all of the proposed changes but they are the changes that could increase the residential tax burden and also make possible the George Mason High School project. We welcome your comments and questions on any of the proposed changes. And we hope you will join us in helping Falls Church in methodical, ant-like preparation for our looming capital needs.